1.            BatesManor Furniture:

 

a)       Given that

 

i)               the average Bates.Manor sales in a retail store that carries their furniture is $75,000 at manufacturer’s prices

 

ii)             the typical retail furniture store has a gross margin of 60%

 

Calculate the BatesManor dollar sales at retail prices in their average store.  Explain your reasoning and state any assumptions you make.

 

b)           As noted above, the gross margin of a furniture retailer is approximately                    

60%.  In contrast the overall gross margin in a typical supermarket is 26%, with the category GM’s ranging from 18% for “Meat, poultry and seafood” to 50% for “Bakery/Deli”.  Why are these Gross Margins so different in magnitude?  Suggest reasons and discuss your conclusions.

 

c)     Assume that BatesManor has just hired a new consultant. The consultant has noted the more furniture that people buy (i.e. “the bigger the pie”) the better the sales prospects for BatesManor. She has recommended that BatesManor greatly increase their advertising budget and focus their efforts on increasing the primary demand (i.e. the “size of the pie”) for furniture.  Carefully and critically review this

                         proposed strategy and advise Mr. Bates.  Explain your reasoning.

 

 

2.             Parvaderm

 

a)    Given the revised figures in the Payoff Table below complete the calculations for the five (5) EMV’s.  Show your logic and calculations.

 

CALCULATION OF EXPECTED MONETARY VALUE

AND THE VALUE OF PERFECT INFORMATION

 

Payoff Table

 

 

                                                                                Low Estimate                 High Estimate

                                                                                     P = .3                           P =.7

                        Aerosol Container

 

                        5 ½ Ounce Package                        $59,000                            $130,000                                   

                                           

                        10- Ounce Package                                    -$35,000                            $175,000

                                                                  

 

                        EMV                                          =

                                5 ½ oz package           

 

                        EMV                                                              =                       

                                10 oz package

 

 

Value of Perfect Information

 

                       

                        EMV                                                  =                                                           

                                Certainty           

 

                        EMV                                                  =                                                           

                                Best Alternative

 

                         EMV

                                 Perfect Information         =

 

 

 

Given the above analyses is the test market (total cost of $40,000) economically justified?  Explain carefully.  Explicitly identify your assumptions.

 

 

b)  Write two 200-word (or less) memos  to Ms. Phoebe Masters making the respective cases for

 

(i)             the 5 ½oz package

 

(ii)           the 10 oz. package.

 

i.e. you are to incorporate the analysis presented in (a) above to support each package size in the separate memos.  Incorporate the notions of risk preference (from Ms. Masters’ point of view) into each memo.

 

Extra Credit (4 points).

 

President Obama has proposed an increase in the national minimum wage from the current level of $7.25 to $9.00. Apply the principles of causation to evaluate this proposal from the differing perspectives of

 

1)    a current minimum wage worker;

 

2)    an employer of minimum wage workers;

 

3)    a Union executive.

 

4)    An investor in Macdonald’s Corp.

 

Explain your reasoning

 

You are the assistant to the CEO of a major company.  Your CEO keeps an eye on the competition, and asks you to do the following. Using ratio analysis, compare two major competitors in the same industry.

 

Instructions:

• Pick any two U.S. public companies in the same industry.
• You may obtain financial information and the companies’ latest annual reports on the web directly from MSN Money or Yahoo Finance. For additional information, look for the SEC Form10-K link from one of the MSN Money or Yahoo Finance financial sites. 
• One of your two companies can be the same company you used in Week 2.
• Select the 10 “most important” financial ratios for your two companies and calculate each for the last 2 fiscal years using Excel.  You should calculate at least one ratio in each category: liquidity, leverage, profitability, and efficiency.  Then, add other ratios where there are large differences between the two companies you chose.  That’s my definition of the phrase “most important.”
• Follow the same format as the Drugstore Chains example (DrugstoreChains.xls). 

1. Create a single Excel file for your entire assignment.  
2. You should calculate, and comment upon, all 10 financial ratios for the last 2 fiscal years.  For each ratio, your comment should indicate which company has the better ratio.
3. All calculations should be shown, and all answers should be thoroughly explained (a.k.a. “show your work”).
4. It is often useful to compare financial ratios for a company with financial ratios of its industry, but this is not required. Industry financial ratios can be found on Morningstar.com, Yahoo Finance and MSN Money andhttp://www.bizstats.com/corporations.asp?profType=ratios
5. What can you tell from your analysis?  In other words, which company is the stronger competitor overall? Give your reasons.
6. Your Excel file should be submitted via the “Week 3 – Individual Assignment” link.
7. Here’s how I’ll grade your sheet.  1pt for each ratio calculated correctly as your work should show; 1pt for each correct interpretation of the ratio (i.e. which company has the stronger ratio?); 1pt for your conclusion on which company is the stronger competitor overall (actually pick one or the other. no ties!);  1pt for your reason (a qualitative statement about the company that draws on but is not simply rehashing the analysis you’ve done) .   Total: 22pts.